The US Federal Reserve has taken an initial step toward introducing a more limited form of its master accounts by seeking public input on the creation of ‘payment accounts’.
These accounts would allow financial firms to access the Fed’s payment infrastructure without fulfilling the extensive requirements currently necessary for full master account privileges. The Fed has opened a 45-day comment period to gather information on how to accommodate requests from firms leveraging new technology to simplify clearing and settlement processes.
Master accounts serve as direct connections for financial institutions to the central bank’s payment system, enabling them to process large-value and time-sensitive transactions. These accounts are traditionally difficult to obtain, posing challenges for fintech companies and cryptocurrency firms seeking smoother access to US payment rails. The proposed payment accounts aim to support innovation while maintaining the stability and security of the financial system.
Governor Christopher Waller emphasised that these accounts are intended to facilitate innovation without compromising systemic safety. He described the request for information as an essential first step for the Fed to adapt to evolving payment technologies. The accounts would differ from traditional master accounts in several ways: they would not earn interest, would not provide access to credit from the Federal Reserve, and would include limits on balances held.
Potential impact on financial innovation
The Fed’s initiative could have significant implications for the financial sector. Approximately 5,000 institutions currently maintain master accounts, including commercial banks, government-sponsored enterprises, and a small number of international organisations. Access to payment accounts could lower barriers for hundreds of additional fintech firms and crypto exchanges, potentially expanding their ability to process transactions efficiently. By opening access to a wider range of institutions, the Fed could encourage competition and innovation while accommodating the rapid growth in electronic payments.
The Fed is also examining how these accounts could support real-time payments. The RTP network surpassed 1 billion total payments by early 2025, roughly 18 months after reaching 500 million. Payment accounts that allow more firms to interface directly with central bank rails could increase adoption of real-time payments, reduce transaction costs, and improve liquidity management across the financial system.
Despite these potential benefits, the proposal has encountered criticism. Governor Michael Barr, a former Fed regulatory chief, raised concerns regarding insufficient safeguards. He highlighted the risk that accounts could be exploited for money laundering or terrorist financing if institutions using them fall outside the Fed’s supervisory reach. Any final framework will likely need to address these regulatory and compliance concerns before implementation.
